Flipping the Pricing and Underwriting Odds in Your Favor
For insurance organizations that work with legacy systems, the key to meeting today's market challenges lies in moving to ﬂexible, distributed policy administration systems (PAS), claims administration systems, and billing systems. To achieve high business value from a successful PAS transformation, organizations need to look at fresh ideas to combat market pressures and make tough business transformation decisions.
Bridging the Gap: IT Must Deliver Growth for P&C
An uncertain economic climate continues to put pressure on IT budgets, especially for P&C carriers. Today, delivering proﬁtable growth, and getting a higher Return on Investment (ROI) from current IT spends is a business imperative for P&C carriers.
While IT spends vary, at a more macro level, the outlay is divided between “keep-it-running” expenditure—dedicated towards support and maintenance of existing systems—and “improve-the-business” investments. The latter can yield rich business beneﬁts for carriers if conceptualized and executed correctly.
For example, Personal Lines carriers have made signiﬁcant investments in making quote and bind functionality available to applicants and agents. Yet, to proﬁtably sell online or through intermediaries, a carrier should be able to pick and choose the risks within its underwriting guidelines without being too restrictive or highly priced. A key component of this ability is access to comprehensive risk information—a major hurdle for most P&C carriers. Insurers, forced to price risks based on inadequate data about their customers, open themselves to greater chances of failure. The emergence of new and reliable sources of information such as data aggregators shows the way for better and more proﬁtable writing.
One of the critical pieces that helps solve the “proﬁtable selling” jigsaw puzzle is real-time integration of the insurer’s core Policy Administration system with that of the data aggregator’s. Real time integration of the underwriting system and rating engine with that of the third-party data aggregator results in a number of business beneﬁts such as improved risk assumption, accurate pricing, expansion of data for future analytics, and improved conversion of business while selling online. All these lead to a higher ROI on IT spend.
This white paper explores underwriting challenges, beneﬁts of using data aggregator services, opportunities for improving submissions, and the need for Policy Administration System (PAS) integration.
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Data Aggregators: Instant Information, Distributed Costs
One of the distinguishing characteristics of the P&C industry is the limited amount of risk information available for insurance products at the time of sale. Measuring and minimizing this uncertainty underlines the need for the industry’s sharp focus on data and analytics.
The data for underwriting requirements in the P&C industry can come from a number of sources, including, but not limited to, insurance companies’ transactions, Federal and State courts, Federal and State agencies, primary data collected by surveyors and, in many cases, individual customers. However, one of the most accessible and increasingly reliable sources of data is third-party data aggregators who collect and store information from all the available sources and provide it to carriers at a fraction of the original cost—they do this by distributing costs amongst numerous carriers who subscribe to their data services
A data aggregator is usually a vendor or a third-party service that assimilates risk-related information. Examples of such data aggregators include Choice Point, Explore Information Services etc. Data aggregators use sophisticated data collection and aggregation techniques enabling them to own credible and homogenous data. The data is made available to carriers primarily through databases, separate standalone applications, and Web services. This allows insurers to open their policy administration and/or rating systems to directly receive underwriting and risk data in real time and use it for decision-making and accurate risk-pricing.
Golden Opportunity: Integrate Rating Systems with Data Services
The cornerstones of real-time quoting and policy issuance capability are a strong set of well-deﬁned business rules, conﬁgurable rating capability, and real-time availability of external data related to risk(s). Many P&C insurers continue to run their businesses without entirely exploring the potential of risk-related data available with various data aggregators.
For example, a large number of P&C insurers while quoting a homeowner’s risk, use geographical location, credit score, and applicant’s loss history, over and above the personal information provided by the applicant. However, a small number of smart insurers are able to determine and use the actual distance from the coast, the property’s distance from the nearest ﬁre station, proximity of a ﬁre hydrant to the property, and estimated replacement cost for the property before providing a quote to the applicant.
Given the above, P&C insurers should aspire to integrate their rating systems (whether standalone or part of the core policy administration capability) with data services that help their underwriters accurately assess and price the risks undertaken.
Real-Time Data Services: Trends and Challenges
As insurers looking to fast-track the policy issuance process and right-price risks explore the possibilities of accessing real-time risk information, roadblocks in data integration challenge them—speciﬁcally, integrating their Core Policy Administration system with that of the data aggregator’s. However, the quest is worthwhile because this approach, eﬃciently leveraged, can lead to smarter insurance processing, save time and resources, and accelerate growth.
Here is an overview of the elements, range of services, and challenges of the integration approach.
Need for an Agile Services-based Framework: A real-time integration approach can be challenging to implement because of the need to deﬁne a services-based framework. Understanding how modern P&C systems operate can show the way.
These systems support “loosely coupled,” service-oriented architecture that integrates seamlessly with the third-party systems using XML Web services, allowing the underwriting system to access them in real time. Data from these common services is obtained through a service call to the third-party service during the underwriting process. These service calls essentially involve an XML request to the service and an XML response from the service.
This approach enables an underwriting system to avoid “tightly coupled,” point-to-point integration of risk data service, which makes it diﬃcult for systems to adapt to changing business rules and requirements. Each modiﬁcation to the third-party service may require code changes in the underwriting system and vice-versa. Owing to the business imperative of rating/underwriting a policy in real time, these Web services require a high level of availability with little or no downtime, as the risk data provided by the service may be immediately required to complete policy issuance.
Need for an Enterprise Service Bus (ESB): To quickly and seamlessly integrate multiple third-party services with the underwriting and policy issuance systems, the carrier’s Enterprise Architecture framework should create an Enterprise Service Bus (ESB) that moves common third-party services to the ESB. These common services can then be used by multiple underwriting/policy issuance systems supporting diﬀerent lines of business to obtain risk data through a services-based middleware.
To enable reuse of risk data and optimize underwriting expenses, a logging database must be created to store all date and time stamped service requests and responses with a unique identiﬁer. This logging database provides the ability to reuse previously stored risk data for an existing risk in the underwriting system, subject to a time window.
A 360-degree View of Applicants: Gaining deep visibility into an applicant’s background and life-events with such data integration rationalizes the entire policy issuance process from quote to bind. An assessment for underwriting a Personal Auto insurance thus takes into account the insured’s credit history, vehicle usage, driving records, and vehicle characteristics. Similarly, a homeowner’s insurance risk assesses the property’s loss history and location-based ﬁre and hurricane peril scores. Given the availability of good quality underwriting data, carriers can now focus on how to integrate real-time data with multiple underwriting and policy issuance systems to enhance the way these systems issue policies.
What Data Aggregators Can Do
There are a large number of data vendors in the market today that not only provide up-to-date risk data, but also integration options. Consider the range of services, for example, in the selection of data sources for Personal and Commercial Lines carriers below.
Line of Business: Auto
Line of Business: Home
Line of Business: Commercial
Upping Your Insurance Game
At the heart of the insurance business is the customer whether it is an individual or an organization. On one hand, rising economic uncertainties are multiplying risks at all levels, and on the other, opening up new risk markets. In an increasingly volatile and customer-centric age, smart P&C carriers will do well to invest in SOA that enables real-time data integration. This will help minimize risk, drive agility, faster time-to-market, and deliver higher ROI and customer satisfaction. Data aggregators can offer multiple benefits for P&C carriers:.
Wider Scope of the Quote Process: Real-time underwriting data capability arms carriers with the ability to price risk even with limited inputs from the applicant. This gives them a competitive edge against other carriers who rely on time-consuming Web forms or third-party sites to obtain vital underwriting information. In the battle to convert a quote into a policy, carriers with a deeper quote process will survive owing to their instant response and result (in the form of final premium to be paid) capability vis-à-vis other carriers who lack depth in the quote process and often request the applicant to revisit their quote at a later point in time to know the underwriting decision or final premium.
Compelling Value Proposition: Every time a conversion fails, the related costs are unrecoverable for an insurance producer. Many a times, the quote does not convert into policy because the carrier could not respond in time. Thus, timely response is of the essence for producers. A carrier promising timely and accurate response definitely offers a high value proposition for the producer.
Data Accessibility for Analytics, Reporting, and Compliance: Beyond immediate results for customers, real time data can help carriers develop long term growth strategies and ensure regulatory compliance to accurately and systematically track information—a must for regulatory reporting. Carriers can also look at historical data and catch trends early to guide future decisions.
Cost-Efficiency: An automated underwriting system with automatic responses eliminates the need for manual intervention and lowers operational cost. Moreover, the subscription services of third-party data aggregators are spread across multiple carriers benefitting all.
The NIIT Technologies Thought Board:
Flipping the Pricing and Underwriting Odds in Your Favor
Toward New-Gen Insurance
In spite of technological advancements, Personal Lines carriers even in commoditized lines of business (Personal Auto and Homeowners) get limited amount of information about the risks at the time of insurance policy sale. They face the challenge of running legacy policy administration systems to meet increasing customer demand for making the quote and binding process available online. They can overcome this challenge by investing in integration of their underwriting and rating systems with those of a data aggregator.
To conclude, underwriting risk data aggregators fit well within a customer-centric model, allowing applicants or producers to obtain real time Personal Lines quotes, compare them with different carriers/brokers and coverage options, and finally, select the right insurance policy. In addition, apart from offering technical frameworks that can integrate seamlessly with diverse policy administration systems, the quality and quantity of sources giving vital underwriting information about a prospective insured and their risk has gone up. The recommended path for carriers is to select one underwriting data aggregation service at a time and partner with an experienced IT vendor to evaluate and implement the benefits of such integration.
About the Author
Rajiv Gehani has deep experience in transformation initiatives aimed at improving customer experience, business agility, and operational efficiency. With expertise in the area of Personal Lines rating algorithms, complex price match programs for rollover, integration of PAS with North American industry service databases (MVR/CLUE, Equifax, E.A.R.S and ISO: A-PLUS, PPC), he has led numerous end-to-end implementation(s) of functional modules in business systems in Business-IT liaison roles in the US, Europe, and Asia Pacific. He has also been conferred with CPCU designation by AICPCU. His latest muse is next-generation applications relevant to niche areas of P&C Insurance